MUMBAI: The ongoing merger process of Vodafone India and Idea Cellular could see about a fourth of the telcos’ combined 21,000-strong workforce lose jobs in the next few months as the companies look to save on costs, eliminate duplication and improve efficiency, people familiar with the matter said.
Both companies — which are making losses amid huge revenue pressure and acombined debt of some Rs 1,20,000 crore —have been advised by the nodal team handling the merger to shed at least 5,000 employees in the next couple of months.
“The retrenchment has to happen swiftly because in times of margin pressures in a debt-heavy industry, both companies do not want to start new operations burdened with excess manpower,” said a senior executive aware of the development.
The merger, which has received all clearances except from the telecom department, is expected to close sometime in May. Sources have told ET that those who fall into the bottom quartile in the performance assessment during this appraisal season will be asked to go and profiles that have a mirror image in the two firms, including divisions such as supply chain and procurement, will also face the axe as the telcos want to create a costefficient merged firm without any flab.
“The numbers may exceed 5,000 since duplication will be in large numbers,” said an industry expert aware of development. It will be tough for those getting the axe to find jobs within a vastly shrunk telecom industry that has already let go of at least one lakh employees. While Aditya Birla Group, which owns Idea Cellular, declined to comment, the diversified conglomerate with operations across cement, retail, textiles and financial services among others has in the past accommodated some of its retrenched employees in other group companies.
Responding to queries from ET, a Vodafone spokesperson said, “This is pure speculation and totally untrue. The two companies have not received final merger approvals and so the leadership teams of Vodafone and Idea continue to compete in the market and manage their businesses separately. No decisions have been taken about the workforce of the merged entity, although it is fair to assume that employees will benefit from the opportunities that arise from working for a significantly larger operation.”
Idea and Vodafone currently employ roughly 11,000 and 10,000-plus people, respectively, and analysts have said that a key to the success of the combined entity is their ability to be nimble, expand networks and price their offerings competitively. Cost efficiency will be a key element for the success of the merged entity in a brutally competitive market.
Analysts said rivals Bharti Airtel and Reliance Jio are looking to poach Vodafone and Idea’s subscribers at a time the two firms have their focus on completing the transaction, analysts said.
Despite financial pressures, the merged entity needs to keep spending top dollar to expand and deepen its 4G coverage — which is lagging both Airtel and Jio — and further set the platform to upgrade to 5G in future, highlighting the need to keep their operations lean, they said.
“The merger will improve their earning per share (EPS) and reduce debt to equity, but there are operational costs. For that, one needs to have higher cost efficiency, and manpower will be the first to go,” said Sanjiv Bhasin, the executive vice-president for markets and corporate affairs at brokerage IIFL.
“With most work done online, telcos need to employ far fewer people now than they did earlier and this is best time to let go of extra workforce,” he added.
The combined entity will be the largest mobile phone operator in India — replacing Bharti Airtel — with almost 42% customer market share and 37% revenue market share.
Last month, the two sides announced the top leadership team of the merged company, to be headed by Balesh Sharma as chief executive officer. Both telcos are expected to post meek results for the March end quarter.
Listed Idea Cellular’s losses are set to widen, primarily hit by the cost of servicing its mounting debt besides price competition amid falling revenue, a case likely to be mirrored by unlisted Vodafone India as well.
But Idea and Vodafone have sold or are selling their captive towers besides trying to sell their respective 11.5% and 42% stakes in tower company Indus Towers to raise funds. The Aditya Birla Group has recently infused Rs3,250 crore into Idea, which will also raise a further Rs3,500 crore via a preferential share issue or a rights issue. Correspondingly, Vodafone Group is infusing Rs7,390 crore into its India operations, which along with the Idea fund-raising, will be used to pare debt.
Source: Economic Times